1. The Field of the Invention
The present invention relates to overdraft coverage for financial accounts. More particularly, embodiments of the present invention relate to an overdraft line of credit that is linked to a stored value or prepaid debit card such that transactions that exceed the available funds in such cards can be completed.
2. Related Technology
In the financial account industry, various types of financial accounts permit account holders to initiate payment in a commercial transaction. An example of such an account is a personal checking account in which account holders can issue personal checks that result in funds being drawn from the checking account and transferred to the recipient of the check. In the absence of some sort of mechanism for covering transactions that would exceed the available funds in the checking account, checks that purport to transfer an amount of money that exceeds such available funds bounce, or are rejected.
In order to eliminate or decrease the number of bounced or rejected checks written by account holders, most financial institutions that offer checking accounts also offer overdraft protection in the form of a line of credit that is linked to the checking accounts. When a financial transaction draws funds from a checking account in excess of the available funds, the difference is covered by money from the line of credit. The overdraft protection in a checking account is tied to a proprietary system for check clearing. In recent years, debit cards have been tied to personal checking accounts, such that overdraft lines of credit have been available through checking debit cards.
More recently, stored value or prepaid debit cards have been introduced by a number of financial institutions. In general, such prepaid debit cards are not linked to a specific account in a bank or another financial institution that is tied directly to a single card holder. Specifically, prepaid debit cards are not linked to individual checking accounts or other individual bank accounts. Instead, an issuer typically pools funds that are obtained from a large number of holders of prepaid debit cards as the card holders load the cards with money. These funds are pooled in a single bank account while the processor maintains the necessary accounting system for allocating specific amounts of the pooled account balance to individual card holders. However, for various reasons, including the lack of any underlying bank accounts dedicated to individual card holders, overdraft protection has not been available for prepaid debit cards.
In addition, merchants who accept, for example, Visa or MasterCard branded cards are able to accept Visa or MasterCard branded prepaid debit cards for transactions under certain limits without verifying that sufficient funds are available. These limits vary from country to country. For example, in the United States, merchants can accept branded debit cards for transactions of less than $50.00 without verifying that the card is loaded with at least the amount of the transaction. Other countries have significantly higher limits.
This fact that merchants do not need to verify that sufficient funds are available, combined with the general unavailability of conventional overdraft protection for prepaid debit cards, has exposed issuers and processors of such cards to the potential of being unable to recover overdrawn funds from card holders.